The U.S. Supreme Court rules against one business-method patent in a narrow decision

The U.S. Supreme Court has ducked the question of whether the U.S. Patent and Trademark Office (USPTO) should continue to issue software patents in a ruling Monday striking down a business-method patent.

The Supreme Court, in a decision with no justices dissenting, upheld a lower court ruling that rejected a patent application by Bernard Bilski and Rand Warsaw for a mathematical formula to help businesses hedge against the risk of rising and falling prices of raw materials. Bilski and Warsaw had sued the USPTO after the agency rejected their 1997 patent application.

Some legal experts had suggested that the court, in the Bilski v. Kappos case, would also take on the controversial issue of software patents, in addition to closely related business-method patents. Several groups, including the Free Software Foundation and Red Hat, had called for the court to reject software patents in the decision.

But the court ruled narrowly in the Bilski case, focusing on the single patent application.

"It is important to emphasize that the Court today is not commenting on the patentability of any particular invention, let alone holding that any ... technologies from the Information Age should or should not receive patent protection," Justice Anthony Kennedy wrote for the majority. "With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck."

The court majority rejected a rule, set out by the U.S. Court of Appeals for the Federal Circuit, that an invention had to pass the so-called machine-or-transformation test in order to be patented, said Alexander Poltorak, chairman and CEO of General Patent, a law firm specializing in intellectual property cases. Under that test, a process qualifies to be patented if it is implemented with a particular machine or if it transforms an article.

"The technology industry had been awaiting the Bilski decision with bated breath," he said. "It is a major relief to the technology industry that the U.S. Supreme Court disagreed ... that the machine-or-transformation test is the sole test for patentability. Software patents get to live another day."

The ruling will have "little effect" on the technology industry, said Scott Bain, litigation counsel for the Software and Information Industry Association (SIIA), a trade group.

"I don't think it will have any effect on what inventions tech companies seek to patent," he said. "The fact that the court did not foreclose business-method patents entirely might mean that patent lawyers continue to include pure method claims in their applications."

SIIA had wanted the court to recognize that the machine-or-transformation test is not the only test for patentability. "Today's decision preserves a delicate but important balance," Bain said. "It keeps the door closed to patenting mere abstract ideas, which many business-method patent applications have been. But just as importantly, it affirms the continued viability of patenting useful software applications, which will allow software companies to continue in their role as a driver of economic growth."

Tough cases will continue to be decided in the Federal Circuit, Bain added. "Bilski was not a tough case," Bain said. "No one thought that should be a patent-eligible invention."

The ruling left software patents alone, but also didn't expressly endorse them, either, said Alex Hadjis, an intellectual property lawyer with the Morrison & Foerster law firm in Washington, D.C. Challenges to software and business-method patents will have to be tried on a case-by-case basis, he said.

"There's life in this one for the software folks that don't appreciate patents coming at them," he said.

The ruling was disappointing, even though Kennedy's opinion referenced past court decisions that limit software patents, said Peter Brown, executive director of the Free Software Foundation. The widespread patenting of software comes out of a series of court rulings, not action by Congress, he said.

"It is therefore all the more disappointing that the Supreme Court failed to use Bilski to clean house and remove software from the scope of patentability," Brown said. "Congressional action that seemed unlikely before will receive new attention. The increasing damage being inflicted by monopolies on essential techniques in computer programming will run its course in the U.S. economy and the number of voices opposing software patents will increase."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantusG. Grant's email address is grant_gross@idg.com.